For investors, what differentiates exchange-traded funds (ETFs) and what potential needs do they fill?
Elliot Johnson, Chief Investment Officer and Chief Operating Officer at Evolve ETFs, shares his thoughts on innovation in the field and the advantages of thematic investing.
1. What draws your investors to ETFs?
Johnson: We’re building innovative products that are investing in growing asset classes and offering people investment opportunities that cannot easily be found elsewhere. Unlike traditional mutual funds, ETFs typically have advantages like liquidity, price transparency in the secondary market, and a lower fee structure.
2. How do your ETFs fill a gap in the market?
Johnson: We conduct extensive research into industries being disrupted by technological advances, but in ways that are outside the pure tech industry. We have thematic funds like EDGE, our innovation index ETF, which encompasses six industries including robotics and big data. CARS, our automotive innovation ETF, includes self-driving technology and artificial intelligence.
3. What do you say to some critics who call thematic investing a gimmick?
Johnson: You look at the internet and no one says “that’s thematic”, because it’s so dominant in our lives. The public doesn’t think of it as a theme anymore. What thematic investing really means is that it’s an early-stage trend, built with a long-term investment thesis. We are trying to find investment products that are here to stay and grow over time.
4. How are you looking at overall trends that transcend beyond sectors?
Johnson: A great example is cyber security – the hardware, software and professional services. It’s a corporate spending priority because every CEO is terrified of a data breach that can have a detrimental impact on their stock prices. To that end, we have CYBR, Canada’s first cyber security ETF. As the world becomes increasingly digital, the value these companies provide will only grow.
5. If we think of tech broadly, what sector has big potential for disruption?
Johnson: I would have to say genomics. It’s a fascinating area and makes up one of the six categories of EDGE, our innovation ETF. It’s also an area where the potential for further advances is so huge that we’re really just scratching the surface. The human genome is the ultimate big data project.
6. Where do you see the greatest opportunities in this sector?
Johnson: Overall, R&D spending is growing rapidly. Most of the techniques seem to be heavily weighted toward oncology research. Cancer therapies are well-suited to an approach that is based on genomics. I also think the development of new kinds of food and pest-resistant crops show the breadth of genomic research and its potential to transform how we live.
7. You mentioned self-driving technology, which will disrupt many industries. Is there a particular industry that will be initially affected the most?
Johnson: I believe that long-haul trucking will be an early user of autonomous vehicles. Logistically, companies know the route the vehicle will take and are able to map the roads in advance. Creating a vehicle that is able to drive anywhere in the world is a much more complex undertaking.
8. Last year, The Economist published a piece called “The world’s most valuable resource is no longer oil, but data”. Do you agree?
Johnson: There’s no doubt. Look at the most valuable companies in the world right now. It’s not Exxon anymore. Facebook and Google are purely data companies. Amazon, Apple and Microsoft sell products, but data allows them to service their customers and provides an indication of what products to launch into the marketplace. We have big data and cloud computing as one of the six categories of our EDGE ETF because this is where the world is going. Big data, data science, machine learning, artificial intelligence – they’re all part of this theme.
9. How does thematic investing fit within a portfolio?
Johnson: Our view on this is that these themes are going to be the growth drivers in your portfolio like tech was in the dot-com years. But nowadays tech stocks are crowded with large market caps. As an investor, you need to look more broadly at where the growth is coming from. If it’s derived from a particular theme, for example, Google and the driverless car, then you should consider obtaining access to that area.
This content was produced by The Globe Content Studio. The Globe and Mail’s editorial department was not involved.
Commissions, management fees and expenses all may be associated with an investment in the exchange traded funds managed by Evolve ETFs (the “ETFs”). The prospectus contains important detailed information about the ETFs. Please read the prospectus before investing. This communication is intended for informational purposes only and is not, and should not be construed as, investment and/or tax advice to any individual.